Campaign finance improprieties at Team Cain?

posted at 12:45 pm on October 31, 2011 by Ed Morrissey

Herman Cain has been hit with two bad headlines today. So far, the first — on allegations of improper conduct while helming the National Restaurant Association — has received almost all of the attention, even though the allegations are thus far vague and still anonymous. However, the second headline might produce more headaches for the campaign, or at least their legal team, as the Milwaukee Journal Sentinel compares some financial records and comes up with a couple of serious allegations of its own:

Herman Cain’s two top campaign aides ran a private Wisconsin-based corporation that helped the GOP presidential candidate get his fledgling campaign off the ground by originally footing the bill for tens of thousands of dollars in expenses for such items as iPads, chartered flights and travel to Iowa and Las Vegas – something that might breach federal tax and campaign law, according to sources and documents.

Internal financial records obtained by No Quarter show that Prosperity USA said it was owed about $40,000 by the Cain campaign for a variety of items in February and March. Cain began taking donations for his presidential bid on Jan. 1.

Prosperity USA was owned and run by Wisconsin political operatives Mark Block and Linda Hansen, Cain’s current chief of staff and deputy chief of staff, respectively. …

It is not known if Cain’s election fund eventually paid back Prosperity USA, which now appears defunct. The candidate’s federal election filings make no mention of the debt, and the figures in the documents don’t match payments made by the candidate’s campaign.

In addition to picking up these expenses at least initially, Prosperity USA also paid as much as $100,000 to the Congress of Racial Equality, a conservative black organization, shortly before Cain was a featured speaker at the group’s annual Martin Luther King Jr. dinner in mid-January.

This could be a much bigger deal than the decade-plus-old settlements at the National Restaurant Association, but not for Cain himself as the earlier Politico story was, at least until Cain’s strong denial. This would put Mark Block and Linda Hansen on the hot seat rather than Cain, probably in two different directions. Prosperity USA was set up as a tax-exempt charitable organization, according to the MJS, which means it can’t contribute to or endorse specific candidates for office. Yet records show that the group listed among its credits a series of debts from the Cain campaign, named Friends of Herman to this day. The IRS will be very interested in those transactions and might have to investigate Block, Cain’s current campaign manager.

That won’t be the only federal agency interested in these transactions. The records obtained by the Journal Sentinel indicates that FOH owed Prosperity USA for chartered air travel in the amount of $17,000, and $3700 for iPads for the campaign that were purchased on January 4th of this year. That would be significant, as those came almost three weeks after the press reported his intent to form an exploratory committee for the Presidency, and eight days before making the official announcement of the exploratory committee. (Interestingly, there doesn’t appear to be any paperwork on the FEC site for the exploratory committee; the first statement of organization I could find on the site for an official Cain committee was in May 2011, when Cain shifted from exploration to official candidacy.)

Candidate expenditures and contributions have to be precisely reported to the FEC, but there seems to be no record of any such transactions involving Prosperity USA. The July quarterly report covers the period from the end of December to the end of June, according to the FEC’s records, but shows no records of receipts or disbursements involving Prosperity USA. Either Block’s records at Prosperity USA were wrong, or the campaign failed to report some significant in-kind contributions, but either way, this seems to describe the matter perfectly:

The national election expert who works with GOP candidates said it would be a violation of the tax code for Prosperity USA to advance money to the Cain campaign for these items. She said there also are strict federal election regulations on reporting debts and incurring travel obligations.

“I just don’t see how they can justify this,” she said. “It’s a total mess.”

It certainly seems that way. If it turns out to be true, I’d guess that it has a lot more to do with inexperience (and probably some incompetence) at Team Cain than any attempt to hide these transactions, which are very small potatoes in terms of their fiscal impact on presidential bids. Romney, Paul, and Perry can raise more than $40,000 simply by waving at a camera, for instance. But it’s another reminder that playing in the top tier means more scrutiny about everything, including funding and campaign management, and Cain had better prepare himself for that kind of attention.